Allocative efficiency: the efficiency with which markets are allocating resources. A market will be allocatively efficient if it is producing the right goods for the right people at the right price. Alternatively, you cannot make anyone better off without making someone else worse off.

Average revenue (AR): the TR divided by the level of output. It is equivalent to the price because it is the revenue the firm receives for each unit.

Barriers to entry/exit: barriers that prevent the entry of new firms into a market. Barriers to entry may be technical barriers, legal barriers, cost (or investment) barriers or barriers that arise from strong branding of the product.

Bilateral: affecting or undertaken by two sides equally, binding on both parties.

Business cycle: the tendency of economies to move, over time, through periods of boom and slump. In other words, the fluctuations in the rate of economic growth that take place in the economy. (aka trade cycle)

Captive consumers: consumers who do not have any choice as to how they access a service/product. Often occurs within a monopoly.

Congestion: over-crowding of a particular service/resource.

Consumer surplus: when people are able to buy a good for less than they would have been willing to pay. In other words they are receiving an effective benefit from buying the good. The consumer surplus is shown as the area between the equilibrium price and the demand curve.

Contestable market: a market in which there is always a threat or possibility of competition. This will still have the effect of making firms in the industry behave as if it is competitive as they will be concerned about the threat of other firms entering the market.

Cross elasticity of demand (XED): a measure of the responsiveness of demand for one good to a change in the price of another. . If the value is positive then the goods are substitutes, and if the value is negative then the goods are complements.

Cross subsidisation: where one group pays a relatively high price and thus enables another group to pay a relatively low price.

Deregulation: the removal of regulation or the removal of controls on a particular market.

Derived demand: where the demand for one thing depends on the demand for another. In other words the amount of demand for good A depends in turn on the amount of demand for good B.

Diminishing returns: a situation where the addition of a variable factor of production results in a fall in marginal product. The firm may be trying to expand by using more of its variable factors, but finds that the extra output they get each time they add more of the variable factor gradually falls.

Diseconomies of scale: a situation where average costs increase as production increases. This is the opposite to economies of scale and often happens where there are communication problems in larger organisations. They are also known as decreasing returns to scale.

Economic growth: an increase in a country's total output of goods and services. It is measured by changes in real GDP.

Economies of scale: where average cost falls as production increases. They are happening because larger firms are able to lower their unit costs. This may happen for a variety of reasons. A larger firm may be able to buy in bulk, it may be able to organise production more effectively, it may be able to organise cheaper loans and so on. They are also known as returns to scale.

Equity: a situation where the distribution of income is considered to be 'fair' or 'just'. An equitable distribution will not be the same as an equal distribution of income.

Externalities: spillover effects from production or consumption for which no payment is made. Externalities can be positive or negative.

Government intervention: when the government intervenes in a particular market. This may mean the introduction of price controls or it may mean intervention buying and selling in an attempt to stabilise the market.

Homogeneous product: all products are perceived to be of the same nature and value by the consumer.

Income elasticity of demand (YED) a measure of the responsiveness of demand to a change in income. . A positive figure means that the good is a normal good whilst a negative figure means that the good is an inferior good.

Increasing returns: a situation where increasing the quantity-variable factor of production causes marginal product to rise.

Inferior goods: goods where an increase in income leads to a fall in the quantity consumed. They will have a negative income elasticity of demand.

Infrastructure:7 the basic underlying networks necessary to support economic activity. This includes roads, bridges, ports, sewers, hospitals and schools.

Interdependence: when the actions of one firm has an effect on its competitors. It is common in oligopolistic market structures where there are only small numbers of firms.

Lead time: the time interval between the initiation and the completion of a production process.

Legal monopoly: a market in which the government has allowed a particular firm to become a monopolist.

Long run (LR): all factors of production are variable.

Marginal cost (MC): the cost of producing one extra unit. It is the increase in total cost when one more unit is produced.

Marginal revenue (MR): the revenue earned from selling one more unit of a good or service. It is the increase in total revenue that occurs when one more unit is sold.

Market clearing price: the price at which equilibrium between supply and demand is reached.

Market seepage: no reselling between sub-markets.

Minimum Efficient Scale: lowest level of output at which the lowest AC occurs.

Modes of transport: methods of moving goods and passengers.

Natural monopoly: a situation where a single company tends to become the only supplier of a product or service over time because the nature of that product or service makes a single supplier more efficient than multiple, competing ones.

Non-excludability: once the good is provided it is not possible to stop people benefiting from it.

Non-rivalry: consumption by one person does not reduce the amount available for another.

Normal profit: the level of profit required for a firm to keep the resources they are using in their current use. In other words it is enough profit to keep them in the industry. Anything in excess of normal profits is called abnormal or supernormal profits.

Peaking: demand for a good is higher at a particular time.

Perishable goods: goods which have a limited life-span from when they are produced.

Predatory pricing: where a firm reduces price in the short run to try to force competitors out of the industry.

Price elasticity of demand (PED): a measure of the responsiveness of demand to a change in price. If a good is elastic (a value for the elasticity of more than one), it is considered to be responsive to changes in price. If inelastic (a value below one) then it is unresponsive.

Price makers: firms who are able to influence price as their output represents a significant share of the market. Firms in monopoly and oligopoly will tend to have a high level of price setting power.

Price takers: firms whose output does not influence price.

Private sector: the part of the economy privately owned and in the control of individuals and companies.

Privatisation: the process of moving economic activity from the public sector to the private sector. The most common form of privatisation is the sale of government-owned shares in private sector companies or the sale of whole companies to private investors.

Producer surplus: the difference between the minimum price a producer would accept to supply a given quantity of a good and the price actually received. It is the gap between the marginal cost curve (supply curve) and the equilibrium price.

Productive efficiency: when a firm produces at the lowest unit cost. This will be at the minimum point of the average cost curve (where MC = AC).

Profit maximisers: firms which aim to make the highest level of profit possible (the largest surplus of revenue over cost) as opposed to other objectives.

Public goods: goods that would not be provided in a pure free-market system. This is because they display non-rivalry and non-excludability.

Public sector: the section of the economy under government control. In the UK it includes the health and education services, the police, fire service and ambulance service.

Quasi-privatisation: the use of private sector money within the public sector.

Quasi-public good: a near-public good. It has many but not all the characteristics of a public good.

Real: excluding the effects of inflation.

Resource mobility: the ease with which resources can move between different uses and locations.

Revenue: the money received from the sale of output.

Short run (SR): at least one factor of production is fixed.

Subsidies: payments made to firms or consumers designed to encourage an increase in output. A subsidy will shift the supply curve to the right and therefore lower the equilibrium price in a market.

Sunk costs: unrecoverable past expenditure.

Supernormal profit: when profit exceeds the amount a firm must receive to carry on production. If supernormal profits persist in an industry this will tend to attract new firms in, supply will increase, prices will fall and normal profits will be restored in the industry.

Tender: companies bid for the lowest subsidy they would need to complete the work required.

Total revenue (TR): the number of goods sold multiplied by the price charged for each one.

Total cost (TC): the total amount spent by a firm on producing a given level of output. It is made up of the fixed costs and the variable costs of production.

Transport: the movement of goods and passengers from one place to another.

Urbanisation: the social process whereby cities grow and societies become more urban.